The seven habits of highly effective digital enterprises 05-23

The seven habits of highly effective digital enterprises

To stay competitive, companies must stop experimenting with digital and commit to transforming themselves into full digital businesses. Here are seven habits that successful digital enterprises share.

The age of experimentation with digital is over. In an often bleak landscape of slow economic recovery, digital continues to show healthy growth. E-commerce is growing at double-digit rates in the United States and most European countries, and it is booming across Asia. To take advantage of this momentum, companies need to move beyond experiments with digital and transform themselves into digital businesses. Yet many companies are stumbling as they try to turn their digital agendas into new business and operating models. The reason, we believe, is that digital transformation is uniquely challenging, touching every function and business unit while also demanding the rapid development of new skills and investments that are very different from business as usual. To succeed, management teams need to move beyond vague statements of intent and focus on “hard wiring” digital into their organization’s structures, processes, systems, and incentives.

There is no blueprint for success, but there are plenty of examples that offer insights into the approaches and actions of a successful digital transformation. By studying dozens of these successes—looking beyond the usual suspects—we discovered that highly effective digital enterprises share these seven habits.

1. Be unreasonably aspirational

Leadership teams must be prepared to think quite differently about how a digital business operates. Digital leaders set aspirations that, on the surface, seem unreasonable. Being “unreasonable” is a way to jar an organization into seeing digital as a business that creates value, not as a channel that drives activities. Some companies frame their targets by measures such as growth or market share through digital channels. Others set targets for cost reduction based on the cost structures of new digital competitors. Either way, if your targets aren’t making the majority of your company feel nervous, you probably aren’t aiming high enough.

When Angela Ahrendts became CEO of Burberry in 2006, she took over a stalling business whose brand had become tarnished. But she saw what no one else could: that a high-end fashion retailer could remake itself as a digital brand. Taking personal control of the digital agenda, she oversaw a series of groundbreaking initiatives, including a website (ArtoftheTrench.com) that featured customers as models, a more robust e-commerce catalog that matched the company’s in-store inventory, and the digitization of retail stores through features such as radio-frequency identification tags. During Ahrendts’s tenure, revenues tripled. (Apple hired Ahrendts last October to head its retail business.)

Netflix was another brand with an unreasonably aspirational vision. It had built a successful online DVD rental business, but leadership saw that the future of the industry would be in video streaming, not physical media. The management team saw how quickly broadband technology was evolving and made a strategic bet that placed it at the forefront of a surge in real-time entertainment. As the video-streaming market took off, Netflix quickly captured nearly a third of downstream video traffic. By the end of 2013, Netflix had more than 40 million streaming subscribers.

2. Acquire capabilities

The skills required for digital transformation probably can’t be groomed entirely from within. Leadership teams must be realistic about the collective ability of their existing workforce. Leading companies frequently look to other industries to attract digital talent, because they understand that emphasizing skills over experience when hiring new talent is vital to success, at least in the early stages of transformation. The best people in digital product management or user-experience design may not work in your industry. Hire them anyway.

Tesco, the UK grocery retailer, made three significant digital acquisitions over a two-year span: blinkbox, a video-streaming service; We7, a digital music store; and Mobcast, an e-book platform. The acquisitions enabled Tesco to quickly build up the skills it needed to move into digital media. In the United States, Verizon followed a similar path with strategic acquisitions that immediately bolstered its expertise in telematics (Hughes Telematics in 2012) and cloud services (CloudSwitch in 2011), two markets that are growing at a rapid pace.

This “acqui-hire” approach is not the only option. But we have observed that significant lateral hiring is required in the early stages of a transformation to create a pool of talent deep enough to execute against an ambitious digital agenda and plant the seeds for a new culture.

3. ‘Ring fence’ and cultivate talent

A bank or retailer that acquires a five-person mobile-development firm and places it in the middle of its existing web operations is more likely to lose the team than to assimilate it. Digital talent must be nurtured differently, with its own working patterns, sandbox, and tools. After a few false starts, Wal-Mart Stores learned that “ring fencing” its digital talent was the only way to ensure rapid improvements. Four years ago, the retail giant’s online business was lagging. It was late to the e-commerce market as executives protected their booming physical-retail business. When it did step into the digital space, talent was disbursed throughout the business. Its $5 billion in online sales in 2011 paled next to Amazon’s $48 billion.

In 2011, however, Wal-Mart established @WalmartLabs, an “idea incubator,” as part of its growing e-commerce division in Silicon Valley—far removed from the company’s Bentonville, Arkansas, headquarters. The group’s innovations, including a unified company-wide e-commerce platform, helped Wal-Mart increase online revenues by 30 percent in 2013, outpacing Amazon’s rate of growth.

Wal-Mart took ring fencing to the extreme, turning its e-commerce business into a separate vertical with its own profit and loss. This approach won’t work for every incumbent, and even when it does, it is not necessarily a long-term solution. Thus Telefónica this year recombined with the core business Telefónica Digital, a separate business unit created in 2011 to nurture and strengthen its portfolio of digital initiatives. To deliver in an omnichannel world, where customers expect seamless integration of digital and analog channels, seamless internal integration should be the end goal.

4. Challenge everything

The leaders of incumbent companies must aggressively challenge the status quo rather than accepting historical norms. Look at how everything is done, including the products and services you offer and the market segments you address, and ask “Why?” Assume there is an unknown start-up asking the exact same question as it plots to disrupt your business. It is no coincidence that many textbook cases of companies redefining themselves come from Silicon Valley, the epicenter of digital disruption. Think of Apple’s transformation from struggling computer maker into (among other things) the world’s largest music retailer, or eBay’s transition from online bazaar to global e-commerce platform.

Digital leaders examine all aspects of their business—both customer-facing and back-office systems and processes, up and down the supply chain—for digitally driven innovation. In 2007, car-rental company Hertz started to deploy self-service kiosks similar to those used by airlines for flight check-in. In 2011, it leapfrogged airlines by moving to dual-screen kiosks—one screen to select rental options via touch screen, a second screen at eye level to communicate with a customer agent using real-time video.

We see digital leaders thinking expansively about partnerships to deliver new value-added experiences and services. This can mean alliances that span industry sectors, such as the Energy@home partnership among Electrolux, Enel, Indesit, and Telecom Italia to create a communications platform for smart devices and domestic appliances.

5. Be quick and data driven

Rapid decision making is critical in a dynamic digital environment. Twelve-month product-release cycles are a relic. Organizations need to move to a cycle of continuous delivery and improvement, adopting methods such as agile development and “live beta,” supported by big data analytics, to increase the pace of innovation. Continuous improvement requires continuous experimentation, along with a process for quickly responding to bits of information.

Integrating data sources into a single system that is accessible to everyone in the organization will improve the “clock speed” for innovation. P&G, for example, created a single analytics portal, called the Decision Cockpit, which provides up-to-date sales data across brands, products, and regions to more than 50,000 employees globally. The portal, which emphasizes projections over historical data, lets teams quickly identify issues, such as declining market share, and take steps to address the problems.

U.S. Xpress, a US transportation company, collects data in real time from tens of thousands of sources, including in-vehicle sensors and geospatial systems. Using Apache Hadoop, an open-source tool set for data analysis, and real-time business-intelligence tools, U.S. Xpress has been able to extract game-changing insights about its fleet operations. For example, looking at the fuel consumption of idling vehicles led to changes that saved the company more than $20 million in fuel consumption in the first year alone.

6. Follow the money

Many organizations focus their digital investments on customer-facing solutions. But they can extract just as much value, if not more, from investing in back-office functions that drive operational efficiencies. A digital transformation is more than just finding new revenue streams; it’s also about creating value by reducing the costs of doing business.

Investments in digital should not be spread haphazardly across the organization under the halo of experimentation. A variety of frequent testing is critical, but teams must quickly zero in on the digital investments that create the most value—and then double down.

Often, great value is found in optimizing back-office functions. At Starbucks, one of the leaders in customer-experience innovation, just 35 of 100 active IT projects in 2013 were focused on customer- or partner-facing initiatives. One-third of these projects were devoted to improving efficiency and productivity away from the retail stores, and one-third focused on improving resilience and security. In manufacturing, P&G collaborated with the Los Alamos National Laboratory to create statistical methods to streamline processes and increase uptime at its factories, saving more than $1 billion a year.

7. Be obsessed with the customer

Rising customer expectations continue to push businesses to improve the customer experience across all channels. Excellence in one channel is no longer sufficient; customers expect the same frictionless experience in a retail store as they do when shopping online, and vice versa. Moreover, they are less accepting of bad experiences; one survey found that 89 percent of consumers began doing business with a competitor following a poor customer experience. On the flip side, 86 percent said they were willing to pay more for a better customer experience.¹

A healthy obsession with improving the customer experience is the foundation of any digital transformation. No enterprise is perfect, but leadership teams should aspire to fix every error or bad experience. Processes that enable companies to capture and learn from every customer interaction—positive or negative—help them to regularly test assumptions about how customers are using digital and constantly fine-tune the experience.

This mind-set is what enables companies to go beyond what’s normal and into the extraordinary. If online retailer Zappos is out of stock on a product, it will help you find the item from a competitor. Little wonder that 75 percent of its orders come from repeat customers.

Leaders of successful digital businesses know that it’s not enough to develop just one or two of these habits. The real innovators will learn to excel at all seven of them. Doing so requires a radically different mind-set and operating approach.

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Harvard and M.I.T. Team Up to Offer Free Online Courses 05-03

(Courtesy Harvard  Magazine)






HARVARD AND MIT presidents Drew Faust and Susan Hockfield today announced EdX, a nonprofit joint venture that will offer online courses to the general public while investigating technologies for improving both distance learning and campus-based education. Appropriately, given the nature of the venture, the presidents’ event inaugurating EdX was streamed live to online viewers.


According to officials from the two institutions, EdX will enable them to address rapidly evolving education technologies more quickly, and with a broader, deeper research agenda, than either could alone. From Harvard’s perspective, using the MITx online course platform—which has 120,000 participants enrolled in its first course, 6.002x, “Circuits and Electronics”—markedly accelerates the University’s entry into large-scale distance learning of this sort.


Highlights of the EdX venture include:


A Cambridge-based nonprofit organization, owned and governed equally by Harvard and MIT, each of which is committing $30 million in institutional funds, grants, and philanthropic gifts to capitalize the venture. (The Broad Institute of MIT and Harvard, now a stand-alone genomics-research center, was similarly inaugurated as a joint venture, with philanthropic support in the hundreds of millions of dollars, in 2003.)
The MITx technology, initially designed to offer noncredit, online versions of MIT courses, incorporating video lessons, embedded quizzes, immediate feedback on student work, online laboratories, and student-paced learning; this platform will be “open-source” software available to other institutions, which will be able to contribute to its development and to add features.


Beginning in the fall of 2012, individually branded, noncredit courses offered by each institution—identified as Harvardx and MITx products—with similar identification offered to other institutions that join the venture as it develops, under the EdX parent. (The news announcement describes a “gathering of many universities’ educational content together on one site [that] will enable  learners worldwide to access the course content of any participating university” using a common set of online tools.)


“Certificates of mastery” for motivated students who wish to demonstrate their knowledge of course content.
In a news release, Hockfield called EdX “a unique opportunity to improve education on our own campuses through online learning, while simultaneously creating a bold new educational path for millions of learners worldwide.” Faust focused on the “unprecedented opportunity to dramatically extend our collective reach by conducting groundbreaking research into effective education and by extending online access to higher quality education…in a way that benefits our students, our peers, and people across the nation and the globe.”


For Harvard, the venture follows several low-cost, low-profile online-education ventures aimed at alumni, in parallel with a growing fee-based program of courses offered through the Extension School (see “Earlier Online Efforts, and Peer Offerings,” below.)


Finding Common Interests


IN A BRIEFING on the venture, Anant Agarwal, director of MIT’s computer science and artificial intelligence laboratory—who led development of the MITx system, and will serve as EdX president—described both the underlying technologies and the educational imperatives propelling the venture forward. Online courses serving massive, diverse, distant student bodies, he said, were enabled by the melding of the Internet with “cloud” technologies, making access to courses essentially universal on desktop computers and handheld devices. Specific applications—such as online “laboratories” where students could, for instance, build circuits as if assembling components like virtual Legos—reflected programming for massive online games. Assessments—quizzes and grading—were widespread for straightforward, technical questions, he said. Creating more complex forms of assessment—evaluating open-ended questions requiring paragraph or essay answers—pointed to one of the basic rationales for EdX: to foster research on learning, teaching, and evaluation, online and in the classroom.


Michael Smith, dean of the Faculty of Arts and Sciences (FAS) at Harvard, emphasized that EdX was not an enterprise for automating campus-based courses and disseminating them online. Rather, he placed it in the context of HILT, the University’s larger initiative on learning and teaching (announced last October, with a $40-million founding gift); expanding interest among FAS professors in rethinking teaching and classrooms, in part by experimenting with technology; extensive online offerings in Harvard’s professional schools; and the sheer pace of change in such technologies. (Harvard’s engagement with EdX is under the direction of Provost Alan Garber, with Smith—a computer scientist—playing a leading role in working with faculty members to develop and deliver courses.)


Research, Smith said, is a “big part of what we will be doing”—determining how education will occur in the future, online and on campus. EdX, he said, provides a focal point for all these efforts; aligns Harvard’s research interests with MIT’s; and promises “huge impact” on education and interested learners around the world.


The Harvard-MIT joint venture took shape in discussions during the past several months, Garber indicated. Both institutions are driven by their interest in using new technology “to strengthen, enrich, and augment the residential, campus model,” said MIT provost L. Rafael Reif, who oversaw development of MITx. Each institution, Agarwal said, brought a strong commitment to research on learning and education, open-source software, improving both classroom and online experiences, and the nonprofit status of the venture. 


Reif called MITx “a living platform,” both delivering courses and driving extensive research on “how learners learn online”—a critical priority for all of higher education. Garber amplified, noting that such inquiries provided an “opportunity to rethink how we approach education fundamentally.” Online courses and tools, he said, offer “measurement capabilities that we’ve never had before.” Educators can see how a student engages with a video, rewinds it, takes a test, and so on. With a large student population in the circuits course and online testing protocols, Reif said, MIT was already administering different versions of tests—making it possible to  derive statistically significant data on, say, how well students mastered material and how accurately tests captured that learning.


Garber characterized as “a deep question” how such experiments and lessons might, in turn, inform and improve campus-based classes. Faculty groups at Harvard, he said, are already working to determine how to measure learning and teaching effectiveness. The right criteria and tools, he said, will be determined by faculty members themselves. Similarly, Reif said, broader course offerings through EdX would help faculty members determine what elements of online learning and technology work best in what disciplines, with what applications—if any—in residential education.


Earlier Online Efforts, and Peer Offerings


HARVARD HAS BEEN relatively cautious in its online offerings, at least compared to alumni demand for such access to the University’s educational resources. Beginning in 2001, Harvard@Home—encouraged by the Harvard Alumni Association—offered versions of lectures, occasional courses, and coverage of major University news events. But the effort was largely felled by cost pressures late in the decade, and by the evolution toward cheaper, shorter videos. A test case of a full course, based on Bass professor of government Michael J. Sandel’s popular “Justice” (a long-running undergraduate Core and General Education class), proved popular worldwide when released in video form in 2007, but was expensive to produce and distribute.


This past March, FAS blended approaches, unveiling “Harvard’s Great Teachers,” mixing shorter videos with hour-long lectures, initially highlighting the work of four faculty members (with more to be released at regular intervals in coming years).


The Extension School, which charges students for its offerings, now has more than 150 online classes, spanning disciplines—probably the most extensive repository of distance-education teaching and learning throughout the University.


During the height of the dot.com bubble at the turn of the century, several universities experimented with fee-based online courses. One of the most ambitious programs, AllLearn—a partnership among Oxford, Yale, and Stanford, chartered in 2001—initially focused on alumni subscribers, but opened enrollment to anyone the following year. It closed for financial reasons in 2006. Fathom, which involved Columbia, the London School of Economics, the universities of Chicago and Michigan, and several leading libraries and museums, also shut down.


The foundation-funded Open Yale Courses now provides several dozen introductory liberal-arts courses online, for free.


MIT launched OpenCourseWare a decade ago, making course materials for essentially its entire curriculum available online. MIT notes that 100 million users have accessed materials from some 2,000 courses.


A 2011 online course, “Introduction to Artificial Intelligence,” created at Stanford, became a worldwide sensation, enrolling 160,000 students worldwide. Following that proof of concept, a for-profit enterprise, Udacity, Inc., now aims to make such courses a regular enterprise; it is offering six courses at present.


MITx, unveiled last December and aimed at experimenting with courses designed specifically for online instruction, embedded that kind of online instruction in a major research institution. With the foundation of EdX, MIT and Harvard are now joining forces in nonprofit, experimental online education on an unprecedented scale.


The EdX Agenda


AGARWAL  phrashed the core issue as “How exactly do we reinvent education for our campuses?” The impact of new technologies, he said, was as consequential as the invention of the printing press. A pilot group of 20 students taking an online class had recently brainstormed with the course developers on how to improve a conventional class. Given that many students opt not to attend lectures, he said, they were exploring an upside-down class model: students would take in videos and exercises on their own schedules before a scheduled class meeting, and then come together to do laboratories, one-to-one projects, and small group exercises, interacting with professors and teaching assistances as apprentices did in earlier eras.


Smith cited examples of this kind of work under way not only in courses taught by Balkanski professor of physics and applied physics Eric Mazur—a pioneer in moving beyond conventional lectures—and in the popular Computer Science 50, led by David Malan, senior lecturer on computer science and director of educational innovation, but also in the social sciences, in digital humanities (the subject of Harvard Magazine’s current cover story), and in other disciplines.


MITx courses, like those offered for the past decade through that institution’s extensive OpenCourseWare program, are free for any student; there is a fee for certificates of mastery. At MIT, Reif said, faculty members develop such online courses as part of their regular employment; he was not prepared to address comprehensively how issues of course ownership might evolve. The MITx platform is offered to faculty members for their use, but on an entirely voluntary basis.


Garber said that Harvard’s position on such issues mirrored MIT’s. EdX and the technology platform are available for faculty members’ voluntary participation. (In past discussions of online education, faculty members have asserted their ownership of course materials they develop for their Harvard teaching.) He expected that Harvardx would include free courses; but professional schools, which already offer fee-based online courses, will be allowed to use the platform to distribute them on a fee basis if they wish to do so. Dean Smith indicated that the Extension School, which offers dozens of courses online on a tuition basis, serving nontraditional students, will continue to do so; in the future, if it wishes to migrate to the EdX platform, it may do so.


FAS’s Smith said that although the announcement signaled just the beginning of a potentially major enterprise, it was “incredibly important” for the educational mission. Identifying important questions and advancing educational objectives, he and Garber said, now depend on building on faculty members’ interest and involving them in EdX’s evolution.  


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